Science Applications International Corporation Common Stock

Your 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one.

Good morning, and thank you for joining SEIC's first quarter fiscal year 2023 earnings call. My name is Joe DiNardi, Vice President of Investor Relations and Strategic Ventures. And joining me today to discuss our business and financial results are Nasik Keen, our Chief Executive Officer, and Prabhu Natarajan, our Chief Financial Officer. Today, we will discuss our results for the first quarter of fiscal year 2023 that ended April 29th, 2022.

Earlier this morning, supplemental financial presentation slides to be utilized in conjunction with a copy of management's prepared remarks.

Later today should be utilized in evaluating our results and outlook along with information provided on today's call.

Please note that we may.

make forward-looking statements on today's call that are subject to known and unknown risks and uncertainties I refer you to our SEC file including the risk factor section of our annual report on form 10 K and quarterly reports on form 10 Q in addition the statements represent our views as of today and and subsequent events may cause our views to change. We may elect to update the forward-looking statements at some point in the future, but we specifically discuss financial measures and other metrics, which we believe provide useful information for investors.

It is now my pleasure to introduce our CEO. Good morning to everyone joining our call. I am proud of the financial results we delivered in our first quarter, representing positive organic growth, positioning us well to deliver on our full year plan. After my remarks, probably we'll discuss results for the quarter in greater detail and provide our updated outlook.

I would like to spend a moment discussing the results of some recent work we initiated internally to better know who SAIC is, why we do what we do, and the values that drive us.

For over 50 years, SAIC has worked hand in hand as a trusted partner of the U.S.

government, advancing our country's most critical no-fail missions. We foster a culture where inclusion leads to innovation because we know the best outcomes come from diversity of systems, engineering, and integration coupled with our proven ability to provide our competitive advantages that we leverage to drive profitable growth. The progress we have made on further strengthening our culture and our continued focus on the mission have directly contributed to the improving financial results we've delivered over the past

several quarters.

In the first quarter, we reported revenues of approximately $2 billion, representing total growth of approximately 6% and organic growth of 4%, both of which combined with recent business development success give us greater confidence.

I am pleased with the performance and progress we are making.

We continue to see significant opportunity to increase the company's earnings organically as we further sharpen our strategic focus on how our business and portfolio strategy is evolving. While we continue to go to market and manage the business around our two customer-facing operating sectors, I want to highlight our key capability offerings that span those sectors, which we define as our growth and technology accelerants core, as shown on slide six and seven of our earnings presentation.

Key capabilities within our GTA focus area include secure cloud, enterprise IT, and systems integration and delivery.

In fiscal year 22, GTA accounted for roughly 27% of our total revenue and a greater share of our operating profit. We believe the investments we've made to develop differentiated market leading solutions and recent M&A activity, our leadership within these domains is reflected in recent rankings from Gartner. Services market share at number one by revenue for the United States government vertical for both infrastructure implementation and managed services and application managed services. We expect to increase our GTA revenue to over 35% of the portfolio within the next three years, reflecting strong growth from this area of our business at accretive margins. Our core includes engineering services, IT and technical services, and logistics and supply chain. Total revenue in fiscal year 2022 across these capabilities represented roughly 73% of SAIC's revenues. As we transform from our portfolio towards a greater share of GTA over the next few years, we intend to grow core as well. Our strategic focus going forward will remain centered on creating the most rewarding and differentiated experience for our employees, investing in markets with growing demand where SAIC has enduring competitive advantages, and allocating capital to drive improving financial returns for our shareholders. While SAIC's legacy and technical leadership has been in providing engineering expertise to help solve our customers' toughest challenges, we see more opportunities going forward to use these skill sets better to capture additional value as a technology integrator. We believe this has the potential to unlock improved opportunities for growth over the long term. Recent program awards which give us confidence in this strategy include a key win in classified space and our expanding role as integrator on the Mark 48 program. These are great examples of evolving a program from principally talent and expertise oriented to delivering a mission specific solution fueled by our talented teams. We are confident in our strategy execution for all SAIC stakeholders. I'll now turn the call over to Prabhu for a discussion of our financial results and our outlook.

Thank you, Nazik, and good morning, everyone. I will quickly summarize our first quarter results and then discuss our performance in the quarter with revenues ahead of our plan at roughly $2 billion, representing total growth of 6%, of which 4% was organic. Revenue performance in the quarter benefited from solid on-contract growth and the timing of material sales previously planned for later in the year. We delivered an adjusted EBITDA margin of 8.7%, primarily 9%, with good visibility into expected margin improvements. We reported adjusted earnings per share of $1.88, which benefited from the more favorable revenue performance in the quarter. I am pleased with our business with net bookings of $2 billion. Our trailing 12-month book-to-bill is roughly $1.0 over the next few quarters. New business wins still in protest, representing over $1 billion in total contract value and squarely aligned with our GTA areas of focus. We continue to see a growing pipeline, as evidenced by a 15% increase in the value of submitted proposals to roughly $24 billion at quarter end. Importantly, the mix within our pipeline continues to change with new business making 10% of the value of submitted proposals, both materially higher sequentially and at this time. We also see good progress in driving a greater share of our pipeline within markets that align with our longer-term growth objectives as represented by within GTA as Nasik discussed. This is an enterprise metric and will be a priority for the team. Based on our updated outlook for the year, we are increasing our revenue guidance by 1% at the bottom end to a range of $7.43 billion to $7.55 billion. Our guidance continues to assume low single-digit declines in 2Q and 3Q due to certain contract transitions before inflecting to low single-digit growth in 4Q, largely due to the benefit of additional working days. Our focus is driving on contract growth to profitably grow the company, and we are confident in our ability to do so. We are maintaining our full-year margin guidance of approximately 8.9% and expect improvement in the second half of the year, led by a more favorable mix and the timing of certain new investments. We are increasing our EPS guidance by $0.10 to a range of $6.90 to $7.20, which continues to assume an effective tax rate of approximately 24%. Finally, our guidance for fiscal year 2023 free cash flow of $500 million to $530 million is unchanged, and I would remind you that it represents an over 10% increase at the midpoint versus fiscal year 2022 and assumes that the Section 174 amortization provision is deferred. Based on expected working capital trends and final payments related to the half-acre acquisition, which both impacted first quarter results, we expect to generate 40% of our full-year free cash flow in the first half of the year and 60% in the second half. Our capital deployment priorities are unchanged, and we remain committed to a prudent deleveraging of the balance sheet with a bias towards deploying excess free cash flow towards our share repurchase program. At this time, we do not expect to adjust our capital deployment plans as a result of the uncertainty related to Section 174 legislation and plan to repurchase between 200 million to 250 million of shares for the year after having repurchased approximately 100 million fiscal year-to-date. As we noted in our earnings press release, the Board of Directors authorized a new share repurchase program for an incremental 8 million shares, representing approximately 16% of our shares outstanding, which we intend to utilize over the next three years, market conditions permitting. We believe this authorization also reflects our ongoing commitment to effectively allocate capital and the confidence we have in executing our plan to drive sustainable, profitable growth and the energy we're investing to structurally improve our cash conversions. I am proud of the results we delivered in the quarter and believe our strategic focus on investing in GTA while sustaining our core business strengths position us well to maintain our forward momentum. I'll now turn the call back over to the operator to begin Q&A.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Your first question comes from the line of Sheila Kayaglu from Jefferies. Your line is open.

Hi. Good morning, Nasik, Pabu, and Joe. Thank you so much. So when we think about the guidance, thank you, it implies organic growth down 1% for the remainder of the year versus 4% organic for Q1. The loss of NASA Aegis, I think, is two points. And then probably I think you cited some working days that are some of the remainder of the slowdown. So can you just talk about, I guess, guidance, what your expectations are for on-contract growth, what the real core organic business is growing, and then You also mentioned GPA, sales, and your number one position by revenues on infrastructure implementation and managed services. How big is this business, and what are contracts that we might be familiar with in these areas?

Great, Sheila. Thanks. Great to hear your voice. Just a couple comments as we think about the quarter and the guidance, and I'll let Prabhu provide some color. But I want to take the opportunity first and foremost to tell you and the team that and extend it to our 26,000 employees how proud we are of the performance that we did have in the quarter. As you referenced, on-contract growth was certainly a key component of that, and we have tremendous opportunity to continue to drive that throughout the year. The performance in Q1 did allow us to modestly increase the guidance, and Prabhu will give you some color on that in a couple of key areas, and so we're very, very pleased with how we sit today and how the year is shaping up. giving us greater confidence in our ability to execute the growth over the course of the year. Probably do you want to provide a little color on the guidance, and I'll circle back on the GTA then.

Morning, Sheila. So with respect to the quarter itself, you know, good, strong revenue performance to start the year. I think I would think about the outperformance in Q1 as roughly half timing and half what I call true performance goodness in the quarter. So we certainly had good momentum in the quarter delivering performance of better growth than we expected even internally. Second data point, we've reflected in the prepared remarks that we expect as a result of the contract transitions to have modest contraction in Q2 and Q3, and then reflecting back to low symbology growth in Q4 of this year. I would say some of that is going to be dependent on timing of our new business pursuits. Obviously, the extra working days in the fourth quarter will certainly help organic revenues in Q4. And the reality is we've got about a billion dollars of new business wins that are sitting right now in protest that is not reflected in backlog. To the extent we have good success in keeping those awards and pulling the revenues associated with those earlier in the year, you'll start to see some modest improvement to the outlook for Q2 and Q3. probably more likely Q3 than Q2. But to me, that's what I think fundamentally drives where we end up in terms of the quarterly cadence for revenue itself. So to me, I'd say good start to the year, nine months left in the year, and I think I'm really especially pleased with the dedication, the intensity with which we executed at Q1, and hopefully we have a chance to continue that execution intensity over the remainder of

Thanks, Prabhu. And, Sheila, let me touch on your couple of questions on GTA. And if I don't get them right, just re-ask me. But I want to give a little bit of color. So on the slide that's in the slide deck, you can see where we've shaded in in blue, you know, the kind of a proportion of the revenue that we achieve today in each of those areas, just to give you a sense for which ones are greater, which ones are less. We don't have specific numbers to report to you on those. at this juncture, but that should give you some color as to what areas we have more revenue and what areas we have less. As it relates to a couple of examples, so if you think about the secure cloud environment, Cloud One is a program you're probably aware of where we support the Air Force, providing the one-stop shop for all the cloud migration activities, so that would be a great example of that area. And then in the systems integration and delivery program, you're probably familiar with Mark 48 Torpedo, where we provide the manufacturing, the assembly, the test and delivery for that torpedo program in support of the Navy. So those are a couple of recent examples that hopefully you're aware of that give you some color on the type of work and the relationships we have with customers in those areas. Does that help?

Yeah, sure. Thank you so much.

Perfect. Thank you.

Your next question comes from the line of Gavin Parsons from Goldman Sachs. Your line is open.

Hey, good morning.

Morning, Gavin.

Maybe just following up on that question for a moment, probably you mentioned the 50% of the growth in the quarter is just kind of core business performance. I mean, how repeatable is that through the rest of the year versus the pull forward where it looks like you reiterated the second, third, and fourth quarter growth rates? So is there some upside on that front? And is there any change in your assumption for ageist contribution for the year?

So I would take the second part of the question first. No change in our estimate for the NASA AGES program. That program is behind us at this point. So I'd say just headwinds associated with NASA AGES for the next, I'd say, 12 months or so. And in terms of, you know, kind of what's implied in the guidance, Gavin, you know, I'll probably reiterate some of my earlier comments, which is, you know, we have some new business out there in protest, about a billion to a billion won, And to the extent we get turned on those contracts a little sooner than what's implied in the modest contraction for Q2 and Q3, we'll start to see some revenue pickups from those newer programs. And obviously, one is much bigger than the other. And as is our typical practice, we don't comment on things that are in protest. We're just going to wait this out and see where We end up that there is potential here for some modest improvement over the course of the year. I will always caution us into thinking about this as a ramp on labor-based programs, so it does take some time to ramp up. There's always some materials earlier in the program, so we'll have to get sort of an initial program review done to ensure that we have the amount of materials on the program sized appropriately. puts and takes here over the course of the year that we'll discover as we go through the quarters here. But I'd say we're well positioned, and it's really going to be important to keep those wins that are in protest right now, and hopefully we have a chance to do a little bit better than what's implied in the guidance right now.

Great. That's helpful. And then maybe just asking about the pipeline. You know, one thing that's struck me is that the backlog has grown quite a lot and you still have a record pipeline. So can you talk about, you know, how much of that is maybe end market growth versus you expanding the addressable market you can pursue versus deciding to pursue more work? And how should we think about kind of the timing of conversion of the pipeline to backlog to revenue as we go forward?

Yeah, I'm glad you asked the question, Gavin. I think, you know, for us, Nasik and I especially, it's really important to think about the pipeline over a really long period of time. And it has been this company's focus for several years now to ensure that we have the right quality in the pipeline, that we have enough length in the periods of performance so we actually have tangible visibility into the growth of the backlog, and obviously the funding levels associated with the pipeline. So I'd say fundamentally I would attribute the increase in the size of the pipeline to real goodness from our BD teams, our sector presidents that are driving growth within the business. So that's what's driving fundamentally most of the increase in the pipeline. There's always an element of budget associated with seeing the end markets broaden out a little bit, but I'd say it's probably less of a driver at this point. We all see the budget talk out on the hill. We're not quite seeing the impact of that implied in the pipeline, I would say, at this point. It's just solid execution, ensuring that we are bidding the right kinds of things and ensuring that we actually have accretive returns from a shareholder perspective to ensure we deliver value consistently. And I'd say the last thing I'd put down is, look, The NASA Aegis loss was a big part of the portfolio, and we lost 2% of our top line. Nasik and I are just very proud of how resilient the teams have been to bounce back and grow the pipeline consistently so we can continue to grow the company on a top line basis. So that's what I'd submit.

Thank you.

Your next question comes from a line of Matt Akers from Wells Fargo. Your line is open.

Hi, good morning, guys. Thanks for the question. I wanted to follow up on the GTA kind of mix shift. And I guess how much of that do you think is organic versus maybe any inorganic pieces that you may need to add? And then also, is there any way to think of kind of how different the margins are between those two parts of the business and also sort of how capital intense those two pieces could be?

Let me tackle some of that and then probably provide some color as well. As we talk about the GTA, a couple of things just to highlight. Although we're referring to it for the first time in the acronym on this call, this has been part of the strategy that we've been in development of over the last couple of years. We continue to refine the way we talk about it. We want to certainly be transparent with you all, let you all know what we're focused on and how we see that maturing over the course of the next couple of years. But it has been the journey that we've been on. If you think back to the last couple acquisitions, you referenced organic, and I'm going to circle back. It was to complement that part of the strategy.

The numbers that we're sharing with you, the aspirations, the goals, the portfolio in the GPA, as Prabhu provided a little bit of commentary on how to pursue and put our investment documents into business, we want to make sure that

We are focused in those key areas, not at the expense of core, but to disproportionately grow that part of the portfolio so that we can, in fact, differentiate ourselves in the market, be more competitive in areas where we have solutions, we have capabilities.

And to your last question, also look for the specifically about some of the details around that. Thank you, Nadja. This is our view of the profitability of the business.

We tend to think about this business as being roughly 200 to 300 basis points higher margin than the core part of the business. So you can do the math and effectively get to low double-digit EBITDA margins for this kind of work. Recognizing if we have greater success than what's implied in the PowerPoint chart there, but this becomes a source of It's not the only source Mars extension and then I think I think you actually touched on something just as important.

We don't view the you know the increase Of GPA as a share of the pipeline and the revenue and

as requiring a change in the capital-light business model.

We tend to see this as predominantly still very capital-light business.

We are watching our capital investment in the business to ensure that we remain a good value proposition for our shareholders. So I would say that we are not seeing a fundamental change in the capital deployment strategy as it relates to investments so I'd say fundamentally no significant change.

I may have missed this, but can you quantify how big the cash payment for half-acre was that impacted cash in the quarter?

Yeah, so there were two predominantly change-of-control-related payments earlier last year.

Together, I would call it about $25 million, and if you then did the math to

In a bridge to last year's free cash flow, the remainder was primarily working capital change, including higher bonus payments in Q1 of this year compared to Q1 of last year. And I always tend to think of those as good things for our employees. So as I sort of normalize for those two things, we end up with free cash flow that's in that circa $116 to $170 million on a normalized basis with my air quotes here on normalized. But that's how we think about it.

That's great. That's helpful. Thank you.

Your next question comes from the line of Bert Subin from Stiefel. Your line is open.

Hey, good morning.

Good morning. For Boo, SAIC's leverage is toward the higher end of the industry. Can you just walk us through how you think about your leverage in relation to how aggressive you can be on the FIBAC program?

Yeah, so... So our leverage is sitting our expectation, which we've communicated fairly consistently now, and we've even said at points in time we may be a little bit lower and at points in time we may be a little bit higher. As it relates to the capital deployment and buyback question, here's sort of how we think about it. We are deploying free cash flow in ways that maximize shareholder value. And we've mentioned fairly consistently now that our biases towards our shared repurchase program, that's not based on blind faith that the stock is cheap.

That's really general, underlined, tends to reflect skepticism on our ability to grow the business consistently.

And as Nazik and I have pointed out, we have confidence we can consistently grow this business consistently. So we view the returns on our repurchase program as offering an attractive return on capital. So as I think about it, we also think about the capital deployment in the context of the excess cash we generate on an annual basis. And therefore, as we think about the roughly 8 million shares of incremental authorization and what's implied in terms of the you know, share count out there at, you know, roughly the 8 million shares or so. That's about three years. And out of the chart in the supplemental data that showed the history of repurchases at SAIC, and I'd say this one's a little bit larger than the prior ones, but we think there's capacity here in the organic cash generation of the business.

We can, we believe, do this in a leveraged, neutral way.

That's very helpful, Prabhu. Thank you. Just to follow up to some of your comments earlier on, you know, thinking about the puts and takes of the business, I mean, one of the larger would seem outstanding items is just the Vanguard contract, which I believe is one of your largest contracts, and it's supposed to be recompeted into a multi-award contract that's going to be called Evolve. Is that an impact on FY23 organic growth, or is that something that's furthered?

down the road. Sure. So we're watching.

It is a re-compete that we're in the middle of. We tend not to comment a great deal on those re-competes. I think we've seen some programs slide to the right.

We're watching the space here just like everybody else and watching timeline here.

It could have an impact on revenues in FY23 to the extent that the procurement process remains on track. But again, I think it's anybody's guess as to whether that happens or not this year. And, you know, candidly, if it pushes out of FY23, it becomes a consideration for FY24 revenues. So we're just watching it just like everybody else. It is a complex procurement, and we're there executing the mission, and the team's doing a fantastic job right now.

Just a quick clarification question on an earlier answer. You said GTA is 200 to 300 bps above.

Is that above your average margin, so the 8.9-ish percent, or is that above the core segment? Thank you for the question.

It is above the core, and think of the core as low to mid-8%, so it's about 200 to 300 bps higher than that.

Thanks for that.

Your next question comes from a line of Kaivan Rumor from Cowan. Your line is open. Thank you.

yes uh thank you very much so um the december quarter was basically very weak for the entire sector and you know the button i think there was a thought that bookings momentum would pick up could you give us some color on kind of the momentum you saw throughout the quarter and you know as you're going into this quarter are we seeing a pickup in terms of your booking momentum

Hi, Kai. It's Nazik. Let me touch on a little bit of that, and then probably we can provide some color as well. The budget process has helped, I think, with some certainties, but outlays have been slower, and I think you've probably heard that throughout the industry. But we do see a positive environment, and we continue to operate in that environment. I would characterize Q1 as fairly normative, as probably mentioned. We do have over a billion dollars of new business in protest, and so if you kind of partnered that with the rest of Q1. I would say it was a relatively strong quarter as it relates to bookings, and obviously those will clear through the process over the next quarter or so. But I would just characterize it as fairly normative, and we don't see anything swinging one way or the other going forward. Obviously, as the government continues to execute on their budget, as we get towards year end, we keep a close eye on some things that certainly could bubble up. But I would just characterize things as rarely normal for us.

Thank you, Nadia. And Kai, thank you for the question.

I'd say, you know, broadly supportive by the environment, as Nasik said, we are not seeing that translate necessarily into higher outlays on a month-to-month basis. In fact, looking at the data for the last six months of the government fiscal year, I cannot think of a year where the outlay pace has been slower in the last 20 years, candidly, except maybe 2003. So to me, the data implies a slowness in the outlay, recognizing we've got a few months left here in the year, and we are likely to see some pressure build up in the system for higher outlays, but we're just going to have to sit back and watch it. But as of at least April, we've not quite seen it in the data, but I think Nasik's exactly right. It's been a fairly typical kind of normative quarter, and we do take a fair amount of time looking at what's in the pipeline, and not just the PWIN, but also the PGO, and you know, likely pressure on timing.

And I think one of the reasons were, you know, it seems a little bit harder in a tough labor market.

Yeah, Kyle, I also want to touch on what you've reinforced. You know, in addition to what I would consider normal bookings that happen over the course of business, we are very focused on driving on-contract growth.

And as you've seen with our numbers and we've reported, we have tremendous ceiling in which to execute. And so in addition to what I'll call the normal blocking and tackling of winning new business, booking new business, clearing protest periods, our team is doing an exceptionally good job in executing on contract growth, retiring some of the ceiling.

Thank you. And I have one follow-on on Vanguard. You mentioned that it's complex.

I know that there are various pieces, but it's also an expanded recompete. So could you give us some color?

I mean, I assume they're not all equal size, but what are the ones that are, you know, the bigger ones, and roughly when would you expect decisions on them?

Hi, I'm going to try to answer that as best I can, but I'm fairly certain you're not going to love my answer because I can't give you LVR.

I'm very fortunate to be one of the incumbents in this portfolio. You're right.

The absolute value of all the solicitations that will come out is greater in nature. Some of them I'm certain will be small business set-asides. Some of them will be work streams that aren't in our, you know, kind of our long-term strategy. And some are absolutely those that we believe we have a very strong position, permission to win, and will absolutely win our fair share. But with all that being said, I really can't quantify it for you. They're putting together their solicitation strategy. So, you know, so there's a lot of unknowns. So at this juncture, I really can't give you an answer.

I can tell you that we will pursue aggressively those parts of the business where we believe we can differentiate, where we can win, and we can deliver excellence to our customers.

But there probably are going to be some pockets that aren't part of our strategy or may just even be, you know, set aside for a small business portfolio. So that's the best I can tell you at this point.

Thank you very much.

Your next question comes from the line of Toby Sommer from Truist Securities. Your line is open.

Hi, Toby. Hi. Good morning.

I'd like to get your thoughts and updates on the workforce, turnover rate, any new initiatives, how those rates are trending year over year, sequentially, however you want to frame it. And then does PTA require But you ask, inspect, and filter your hiring process. Describe that if you could.

Shelby, I lost the last sentence of your question. If you could just – something about GTA. Sure.

If you could describe the implications of your sort of hiring target employees.

Okay. So as it relates to the labor market, certainly, you know, the labor market is the height of COVID. We're seeing increased turnover as well, as is, I think, just about everybody in our industry and all technology industries. But with that being said, we've remained very successful in our ability to hire great talent into the company. And we have done some things, and I think there's a slide in the deck as we think about the value that we, you know, the value creation for our employees is We are very focused on ensuring that we put together a competitive benefits package. We are reinforcing the flexible work model that became, you know, one of the positives that came out of the COVID situation for our employee base. And our customers are doing the same. So we continue to, you know, make sure that we are messaging to our employees. And we are investing in creating an environment and a workplace where employees choose to stay at SAIC every day. And that is certainly part of our strategy. Our people strategy is absolutely an underpinning of our corporate strategy. So I like, but consistent with industry. And our ability to hire, I think, is absolutely outstanding. So I don't, you know, it's something we pay attention to, but it's not something that, you know, that I think causes undue risk to the organization. Probably actually the opposite. as it relates to the type of people that we look for as we focus on GTA. In some cases, it's very similar skill sets. The way in which we deliver the work can be slightly different. The mechanisms, the contract mechanisms, delivering solutions sometimes over just labor services can be slightly different. But in many cases, the type of people, the engineers, the software engineers, the cloud engineers, are oftentimes the same people. And so we've got some internal training that we're doing to make sure our workforce is ready as we expand this part of our portfolio. And then we also look to hire individuals as well that help complement that. So I don't view it as a radical shift in the type of people, the type of labor, and we'll just continue to build on the great workforce that we have today.

Thank you. And just another question on the workforce. Do you have any sense for whether we're still in like the most competitive environment with the biggest wage pressure in labor mobility? Or are there any signs that you would observe that say we have crested and we're either sort of stable sequentially or maybe even seeing some of those pressures recede?

I'll give you an opinion. You know, as I talk to colleagues in the industry, and even in other technology industries, I think there is a common view that we may have already crested, that we're seeing some of the less acute labor challenges across all of the United States in technology. Certainly you're hearing some of the major commercial technology players' message that they're doing less hiring, and I think that that could be good for companies like us that need to do some hiring. So I think it's too early to tell. We watch this every month.

statistics, but I think just based on some conversations, uh, one could, you know, one could have an opinion that maybe we've seen the crest and it's getting better.

But, uh, but again, that's, that's Nozick's opinion. Uh, we don't have the data at this juncture to support that.

Thank you very much.

Thank you.

Our next question comes from a line.

Nozick, Prabhu and Joe. Good morning.

Good morning.

Nazik, when SAIC acquired NGILITY, one of the key drivers was to increase your exposure to the Space Force and the National Reconnaissance Organization. It seems that the elevated geopolitical conflicts have resulted in a sharp increase in demand for geospatial slash Earth observation services, and you're a key provider of those services. So I was wondering, is space one of your focus areas for the GTA category that you outlined? Because it seems very strategic for you and a growing area. Thanks.

Yeah, Louis, great observation. And I will, you know, the simple answer is absolutely yes. So space is a critical part of our strategy, our growth strategy. And, you know, I think one of the reasons it's not called out in its own box is it spans many of these. So, you know, the work that we do in secure cloud or in enterprise IT or in systems integration also support many, many space missions. And so I would say absolutely we've seen good growth in our space. space portfolio. We see continued opportunity in our space portfolio, really spanning all of those areas of the growth accelerants.

Thanks, Nazik. That's helpful. And one for Pabu. If you achieve the 65-35 split for GTA versus Core in your fiscal 2025 as you've targeted, what is the implication on your current 8.9% margin?

The short version of that would be tens of basis points of improvement to our margin rate. So think of that as comfortably over 9%. And of course, our aspirations are always higher than what's on a PowerPoint chart. So hopefully we have a chance to do a little bit better than that. But I'd say tens of you know, percent of improvement in margin rate. And, again, as we flagged, you know, it's one of many avenues left for us to improve margin across the company, and this happens to be a really attractive one to grow the company and improve margins at the same time.

Awesome. That's it for me. Thanks. And there are no further questions at this time. I turn the call back over to Joe DiNardi for some final closing remarks.

Great. Thank you, Rob, and thank you to everyone for joining us today. We look forward to speaking with you next quarter.

This concludes today's conference call. Thank you for your participation. You may now disconnect.